Is Sports Programming Losing Its Edge?

Many attribute the success of Sky's pay-TV operations in the UK to its licensing of Premier League
soccer in 1992 for £304 million (approximately $374 million at the current exchange rate.)

In the US, DirecTV Group Inc. (NYSE: DTV) has benefited similarly, positioning itself as the home of American football. More recently BT spent billions battling Sky (NYSE, London: SKY) for both English and European soccer broadcast rights, and it has helped the operator grow its broadband subscribers. (See BT Sport's COO Discusses UHD.)

For years, sports has been "killer" content, and whoever won the bidding wars for major events ended up winning the ratings wars. But recent shifts in viewership, fragmentation of audiences and the impact of social media could be affecting its value.

Admittedly, if sports content is losing its sheen, it's at a very early stage. And there are plenty of examples proving its value to broadcasters and service providers. Still, it's worth looking at a few recent announcements and reports which challenge the impact of high-value sports programming.

Viewership of the American football league (NFL) is down 13.4% this year, a dramatic drop-off given the gilt-edged value of the sport. Networks offering NFL games are now being forced to offer make-good advertising slots to their advertisers for free, to compensate them for the ratings numbers they were promised. While viewership is often affected during election years, this appears to be a more precipitous decline than in the past.

And ESPN, which used to be able to command annual 20% carriage fee increases from operators in previous years, is now pulling fewer viewers on Verizon's service than the operator's pop-culture channel, Complex TV. (See Verizon CEO Predicts Death of 300-Channel Bundles.)

In the UK, Sky reported a 3% fall in its advertising revenue in the past quarter. In this case, there is a recognized weakness in the UK advertising market and Sky actually performed well compared with the broader market. But given its £2.3 billion ($3.6 billion at 2015 exchange rates) investment last year in soccer rights alone, it would have expected to be substantially insulated from broader market trends.

Subscriber additions have also slowed, down 26% compared with last year. Sky blames a delay in the start of the German and Italian leagues for this, and claimed additions picked up in September. But the company's stock price is down about 25% from its peak in February, reportedly due to concerns about competition from other operators and OTT providers, coupled with the growing cost of sports rights.

Ratings for the Olympics this year were also down substantially in the US. When compared with the last summer Olympics, ratings for this year's games fell 21%. In fact ratings were the lowest for Rio 2016 since the 2000 Sydney games, where US viewers had to deal with a 15 hour time difference. (See Streaming vs. TV: Who Wins Gold From Advertisers?)

NBC Universal , the US Olympic broadcaster, blamed a shift in viewing behaviors, stressing that ratings declines were due to a shift towards online viewing. There is some truth to that; the number of streaming viewers were up 29% from the previous games, and the total minutes spent were more than twice the minutes streamed at any other Olympics. But even with broadcast, cable and streaming eyeballs added together, viewership dropped 10%.

Certainly the transition to online video and the advantages of on-demand viewing are important to keep in mind for broadcasters. And we are seeing an increasing slate of sports content facilitate that transition. For example, the US National Hockey League (NHL) will offer out-of-market games via the Apple TV, Xbox One, Android devices, Roku, Chromecast and PlayStation. It will also offer DVR facility for pause and rewind, and a mosaic feature allowing access to multiple games simultaneously. The NHL has also struck a deal with Twitter for streaming NHL games on a weekly basis.

On this side of the pond, Eurosport will now be streaming its Eurosport 1 channel live for free in Germany, and its CEO has said the broadcaster is re-evaluating how it should be packaged and distributed across all of its European markets.

These announcements suggest that sports leagues and broadcasters are increasingly aware they need to follow eyeballs online. Audiences are fragmenting, and growing time-shifted viewing will also have an impact on live ratings. Broadcasters and service providers have to offer multiscreen services, and aggregate viewer numbers across platforms and live/on-demand views. But will that be enough to protect ratings? The increased fragmentation of audiences is going to make it difficult to aggregate the massive ratings numbers in the past. So far, sports content has been the only genre that has been able to do so, but how long can it keep this up?

Another concern is social media. Content is increasingly making its way to social media platforms and for time-sensitive content, such as sports, this may adversely affect viewership. The most exciting moments in a game are goals, hits and touchdowns. If results and short clips are available on social media, will that discourage time-shifted viewership? Or total viewership in the long run?

Or, will it in fact encourage more enthusiasm for the sport and more viewership as a result?

These are important questions that other genres have had to deal with. But demand for major sports has been so powerful that the bigger leagues and channels have been able to protect viewership and revenues from the shifts the broader industry has been seeing. It may be that this will continue to be true, but there are at least some signs that even the last secure bastion of TV programming may be under threat.

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